Form 1116 Gross Income 1a and Expenses

[Ecalero]

Hello,

I have a doubt about Form 1116. I have a rental property in Spain. I paid taxes in Spain for the total rental income (no expenses allowed) as non-resident. I enter that same amount on Gross Income 1a on form 1116 to claim the credit for the foreign taxes. Do I need to enter any of the expenses (depreciation, insurance, etc.)  I'm able to claim on my Schedule E on Form 1116? Or not because the paid taxes in Spain are for the total income of the rental without any expenses?

Thanks for your help.

Emilia

[RobertB4444]

You are entitled to expenses on the rental income here.  So you can enter the rental real estate just as if it was in the US and then the expenses.  Then you will enter the Spanish taxes for a foreign tax credit.

@Ecalero 

[Ecalero]

Thanks for your reply, Robert.  But then I'm not supposed to enter any expenses in Form 1116 because the tax paid in Spain are for the whole amount of the total paid rent, correct?

Regards,

Emilia 

[RobertB4444]

Form 1116 is for reporting the foreign tax that you paid only.  

Your rental house will be entered on schedule E and in the rental real estate section of TurboTax.  You will enter all of the information about the rental home and the total amount of rent income received.  Then you will enter any relevant expenses to earn that rental income.  You can then go enter your foreign tax on 1116.

@Ecalero 

[Ecalero]

Thanks again Robert. I did that on Schedule E. But on the 1116 I'm not supposed to enter nothing on section 2 only on section 1a as the following images, right?   

[DaveF1006]

It depends. Part 11 reports the foreign tax paid on your rental income for the year. The foreign tax paid is recorded in line 8 in Part 11.  Have you reported your foreign tax paid in the foreign interview of the return?

[Ecalero]

Hi Dave,

Do you mean here?

[DawnC]

Yes, Part ll, Line 8 is where the foreign tax you paid gets reported.  

[Ecalero]

Thanks Dawn. But I'm supposed to include the expenses for 1116 here too or not?

[DawnC]

No, the taxes do not get entered there.   Click through those screens until you come to a screen that says Foreign Taxes Paid - Spain.  

[crisalmaa]

Hi! Did you add the expenses? I’m in the same situation as you, renting a house in Spain. I’m not sure if I need to include the same expenses listed in Schedule E here. I have seen different opinions about it. Thank you

[MarilynG1]

You really don't need to enter rental expenses on Form 1116, as this form is just for giving a credit for your foreign tax paid.  It's not to determine your rental income for Spain vs. the income/expenses you already entered on Schedule E for your US tax return. 

I'd suggest entering the amount of rental income on Form 1116 as the same amount of income that was taxed by Spain.  They may have taxed you on your gross income or your net income, depending on what expenses they allowed.

It wouldn't be incorrect to enter any expenses that were taxed by Spain, but may not be necessary or make a difference in your Foreign Tax Credit allowed. 

@crisalmaa 

[crisalmaa]

Thank you for your answer. So, in Schedule E, I include gross income, expenses, and depreciation, and in Form 1116, it's just the gross income (no expenses allowed), with only the Standard Deduction in line 3a right? 

[MaryK4]

Correct, but TurboTax will calculate the amount to attribute, @crisalmaa